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Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission

decided: November 29, 1967.

MERRITT-CHAPMAN & SCOTT CORPORATION, APPELLANT,
v.
PENNSYLVANIA TURNPIKE COMMISSION



Hastie, Freedman and Seitz, Circuit Judges.

Author: Freedman

Opinion OF THE COURT

FREEDMAN, Circuit Judge.

This seemingly simple case presents on careful examination a number of difficult problems which were not presented to us by the parties or considered in the district court.

Merritt-Chapman & Scott Corporation, as the successful bidder entered into a contract with defendant, Pennsylvania Turnpike Commission, for the construction of a tunnel known as Allegheny No. 2 on the Pennsylvania Turnpike. It brought the present action alleging that it had made its bid and entered upon the work under the contract in the belief derived from the plans and specifications that the work could be performed by rock tunneling methods, whereas it was required to change to earth tunneling methods which caused it much extra work and serious delay, for which it sought to recover. The complaint, in eleven counts, alleged negligence, arbitrary and unwarranted interference and fraud resulting from the willful concealment by defendant of its knowledge of geological and other information which indicated that earth tunneling methods would be required.

The district court granted defendant's motion to stay the action pending arbitration. From this order plaintiff has appealed. We have held that such an order in an action at law is appealable as an interlocutory injunction under 28 U.S.C. ยง 1292(a)(1), although it is not a final judgment. Kirschner v. West Company, 300 F.2d 133 (3 Cir. 1962).

I.

Plaintiff contends that its claims are not within the scope of the arbitration provision of the contract. The provision is comprehensive in its inclusion of the controversies which must be submitted to arbitration. It provides for what amounts to an appeal to a Board of Arbitration taken within fifteen days after the decision of the Chief Engineer on claims submitted to him in writing.*fn1 The claims which are thus made subject to arbitration are described in the contract: "All claims for additional compensation, or for damages, arising out of this contract or in any manner related thereto, or any breach of said contract, including claims for additional compensation for any work performed which was or was not covered by the approved drawings, specifications or contract, or for any other cause, including damages for delay ".*fn2

This language is very broad and includes the present claims which are "for additional compensation" and "damages", and clearly are in some manner "related" to or arise out of the contract, and also fall within the description of claims for additional compensation "for any other cause, including damages for delay". They are not excluded from the arbitration provision because they are alleged to have been occasioned by fraud or negligence or unwarranted interference by the defendant.*fn3

We therefore approve the conclusion of the district court that the subject matter of this action falls within the scope of the arbitration provision of the contract.

II.

Plaintiff argues that its claim of fraud in the inducement of the contract prevents the use of arbitration to decide the question, because if fraud is proven the entire contract, including the arbitration provision, would fall.

The district court held that a number of specific provisions of the contract placed upon plaintiff complete responsibility for the soil conditions which might affect the nature of the work and therefore barred a claim of fraud or negligence against defendant. Evidently the parties in their briefs called the district court's attention to what they deemed to be controlling provisions of the contract, although the record before us contains merely the complaint and the motion to stay the proceedings pending arbitration. But since the district court held that the action should be stayed pending arbitration we assume that it did not decide the important question of fraud but left it to be determined by the Board of Arbitration.

There is presented, therefore, the interesting and controversial question whether a claim of fraud in the inducement of a contract containing a provision for arbitration must be decided by the court because it stands at the threshold of the invocation of the arbitration provision of the contract. The question has been put to rest in federal law by the recent decision in Prima Paint Corporation v. Flood & Conklin Manufacturing Company, 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967), decided after the briefs were filed in this case. The Supreme Court there held under the United States Arbitration Act of 1925*fn4 that a general attack on a contract for fraud is to be decided under the applicable arbitration provision as a severable part of the contract and that only where the claim of fraud in the inducement goes specifically to the arbitration provision itself should it be adjudicated by the court rather than the arbitrator. ...


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